Q: Dear Matt:
I’ve taken a job in Milwaukee and they needed me there “yesterday.” We’ll be renting a home until we can find one to buy but my question has to do with our current home in Woodbury. I hate to admit it but I’m not the best maintenance guy and the home is showing some wear and tear and it needs some repairs. I just don’t have time to do them and I won’t be in town to supervise the work anyway so I’m wondering how you feel about selling it as-is?
Soren Anderson, Woodbury
A: Thanks for the question, Soren. Whether or not to sell a home as-is depends a great deal on what type of market we’re in. If it’s a buyers’ market (one where the buyer has lots of homes from which to choose) I would advise against it. In a sellers’ market, however, you have a bit more leeway on what you can get away with and still make a decent chunk of cash on the sale. There are other considerations aside from market conditions, however.
A study came out a year or two ago that found homebuyers, by and large, want homes that are in move-in condition and are willing to pay more for one that is. When a buyer is faced with a large selection of homes yours will need to have some pretty compelling features to beat the competition and get the buyer to pony up for a house that needs repairs.
The first consideration is price – depending on what’s wrong with the home, you may need to price it significantly lower than market value to make it an attractive purchase. If this is something your budget can
tolerate, you’ve passed this hurtle. But, there are others.
THE BUYER’S LOAN
Buyers aren’t the only ones that want a home in move-in condition; the Department of Veterans Affairs does as well, so by selling as-is, you knock a significant chunk of potential buyers out of the pool. In
fact, in 2014 (the last year for which we have statistics), the VA granted 438,398 loans and 3,561 of those were given to Minnesota veterans.
If your buyer is using an FHA-backed loan, the appraiser will specify which repairs and improvements are required for property eligibility. FHA is a bit more relaxed in who pays for these repairs, though.
Additionally, only the repairs that the appraiser says are essential can be included in the sale price. So, although you aren’t completely losing the FHA buyer pool (nearly half of all first-time buyers use an FHA backed mortgage), you are limiting it by selling as-is.
If the problems with the home are health and safety concerns or structural, even a conventional mortgage lender won’t lend money to purchase it. Now you’ve drained the buyer pool so that it contains only cash buyers.
In Minnesota, home sellers are required, by law, to disclose anything wrong with the house or neighborhood that he or she is aware of that “ … could adversely and significantly affect” the buyer’s use and enjoyment of the home. This disclosure must be made regardless of whether or not you’re selling the property as-is. You may need to make some repairs, regardless.
As mentioned above, if your buyer is obtaining a mortgage you’ll need to make certain repairs. These include roof leaks, holes in the walls and ceilings, broken windows, pest problems, HVAC problems and any code violations that exist.
Even some insurers are stepping into the game by demanding fixes before they’ll provide insurance.
If you just can’t make any repairs to the home, you’ll need a strategy to sell it. If the fixes are large and expensive enough, we can market the home as a candidate for FHA’s amazing 203(k) program. This loan wraps the cost of rehabbing the home and the mortgage into one, FHA-guaranteed loan.
You’ll also need a strategy for how you’ll deal with the lowball offers I can almost guarantee you will get. It is important not to take them personally and to know in advance the lowest price you are able and willing to accept.
Finally, I always advise my “as-is” sellers to make sure that the home is clean and tidy at all times. You’d be surprised what a powerful subliminal message a clean and neat home sends to buyers. This goes for the exterior of the home as well.
Since your home will be vacant, I suggest that you have it professionally staged. Not only will this help its online presence in the photos my photographer will snap, but it will provide that subliminal message I mentioned earlier.
It’s one thing to walk into what you know is a fixer-upper but another to have that fixer-upper appear attractive and enticing.